Stock A is expected to pay a constant dividend of $1.00 over the next three years, then the dividend will grow at a constant rate of 5 percent per year forever. The risk-free rate is 3%, the company's beta is 0.8 and the market risk premium is 9%. The required rate of return on the company's stock is expected to remain constant. 

What is the price of stock A? Is it overpriced, underpriced, or fair priced, given the market price of stock A is $14.65 per share?

Answer rating: 100% (QA)

To calculate the price of Stock A we can use the Gordon Growth Model also known as the Dividend Disc... View the full answer